How Much Does It Cost to Refinance a Student Loan? 14 Fees and Costs to Be Aware Of

You will see people say that it doesn’t cost anything to refinance a student loan.

And it is true that lenders don’t charge an upfront fee to refinance.

However, hidden costs in the process, such as origination fees, late fees, or higher long-term interest, can impact your overall savings.

Common Fees for Refinanced Student Loans

Here are the most frequent fees you might encounter when refinancing student loans:

1. Application fee

Charged by some lenders to process your application, whether or not it’s approved.

2. Origination fee

A percentage fee deducted when funds are disbursed. Yrefy charges 5%, while MPOWER charges 2%.

3. Late fee

A penalty for missing your payment due date beyond the grace period.

4. Returned payment fee

Charged if your bank declines a payment due to insufficient funds.

5. Prepayment penalty

Rare but still found with some lenders, this fee applies if you pay off your loan early.

6. Forbearance fee

A charge for entering forbearance due to financial hardship, though less common today. Sallie Mae, for example, previously charged a forbearance fee.

7. Collection fee

If you default on your student loans, your lender may pass on costs for collections or legal action.

When refinancing, prioritize lenders that don’t charge origination fees or prepayment penalties to keep costs lower. Learn more about how refinancing student loans works to identify the best lenders for your situation.

Try to avoid origination fees, or at least calculate those into the total interest cost when deciding to refinance. I would avoid any loan that has a prepayment penalty or forbearance fees.

Jim McCarthy, CFP®

Other Refinance Cost Considerations

Refinancing your student loans can also have broader financial impacts. Here are key factors to evaluate:

8. Total interest paid

Extending your term can lower monthly payments but often increases the total interest paid over time. Use a student loan refinance calculator to estimate the long-term cost.

9. Debt-to-income ratio

Lowering your monthly payment can affect your DTI ratio, which might influence your eligibility for other loans, like mortgages.

10. Variable rates

Variable-rate loans start with lower rates but can rise over time. Refinancing to a fixed rate eliminates this risk. Learn more about the pros and cons of fixed vs. variable-rate loans.

11. Federal student loan benefits

Refinancing federal loans removes protections like income-driven repayment plans and forgiveness programs. Read about federal loan benefits, such as student loan forgiveness, to decide if refinancing is right for you.

12. Credit score impact

A hard credit inquiry during refinancing can temporarily lower your score. This might impact your ability to secure other credit.

13. Student loan interest tax deduction

Refinancing could change the amount of interest you pay, affecting your annual deduction (up to $2,500).

14. Cosigner impact

Refinancing can allow you to release a cosigner, but if one is still required, consider the impact on their credit and liability. Learn more about the pros and cons of student loan cosigners and how refinancing could affect them.

The decision to refinance mostly depends on individual budgets, but the goal of any refinancing should be to lower the total interest paid over the life of the loan.

Jim McCarthy, CFP®

Explore your own savings potential

Every borrower’s situation is unique, and your savings will depend on your current loan details, interest rate, and chosen term length. Use our student loan refinance calculator to input your information and discover how much you could save—both month-to-month and over the life of your loan.